Publication: Where to Use Cost Effectiveness Techniques Rather Than Cost Benefit Analysis
Date
2005-01
ISSN
Published
2005-01
Author(s)
Mackie, Peter
Nellthorp, John
Laird, James
Abstract
Cost Benefit Analysis, and the measures
of economic performance that can be derived from it (see
Note 6: When and How to Use NPV, IRR and Adjusted IRR), is
the preferred method for demonstrating the economic
justification of transport investments. Such an approach,
however, relies on the ability to be able to measure costs
and benefits in monetary terms (see Note 5: Framework),
which renders it problematic for projects where the majority
of benefits cannot be readily monetised. Such a project
could be a Low Volume Rural Road (see Note 21: Low Volume
Rural Roads). In such situations consideration should be
given to the use of measures derived from cost effectiveness
or weighted cost effectiveness (also known as Multi Criteria
Analysis) techniques as the basis for the decision regarding
whether to invest or not. Cost effectiveness techniques are
also a very useful tool for project screening or ranking.
Such a screening process ensures that projects that are
subjected to a more detailed analysis (including cost
benefit analysis) are those that best fit with the
objectives of the investment (e.g. poverty alleviation).
Section 1 of this note outlines the situations in which cost
effectiveness techniques should be used, whilst Section 2
describes the two main types of approaches. Section 3
discusses the issue of economic viability and cost
effectiveness whilst Section 4 presents a summary of recommendations.
Citation
“Mackie, Peter; Nellthorp, John; Laird, James. 2005. Where to Use Cost Effectiveness Techniques Rather Than Cost Benefit Analysis. Transport Notes Series; No. TRN 9. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/c3ab4a01-49ab-5bf2-807c-86dc4d7e7a4b License: CC BY 3.0 IGO.”